Competitive Stances Breed Competitive Stances

Δημοσιεύτηκε: Ιαν 27 , 2012
Συγγραφέας: Robin Copland

The two biggest world aircraft producers are Boeing and Airbus.
These companies have enjoyed a duopoly for the past twenty years,
according to Ryanair's chief executive, Michael O'Leary. Ryanair
currently operate 275 Boeing aircraft. The airline is the largest
low cost airline in Europe. O'Leary changed Ryanair's traditional
business model to a low-cost model based on Southwest Airlines. He
has since refined that model and famously trails what seem at the
time to be outrageous ideas before implementing them and seeing
them become part of the traditional way of doing business (scratch
cards, paying for drinks and food on board the aircraft, credit
card charges and the like).

He is a notorious "hard ball" negotiator. In December 2009, he
pulled out of negotiations with Boeing for a new contract, starting
in 2013 for the supply of new 737 aircraft. He fired some bait in
the direction of Airbus but its chief executive, John Leahy, was
dismissive saying, "I would have no problem selling aircraft to
O'Leary at reasonable prices, but I have not seen anything
reasonable from him" (CAPA 15 December 2009).

Both Airbus and Boeing have been slow to introduce new, more
economic models in the single-aisle 200-seater market, preferring
instead to milk profits from the Boeing 737/Airbus A320 variants
currently on sale. To be fair, both companies have had their
fingers burned recently with new product launches, the Boeing 787
and the Airbus A380. Neither company is willing to bet its future
on a new product when both have tried and tested products already
in the marketplace. Ryanair, as well as other airlines - most
famously perhaps EasyJet, has been frustrated by this lack of
product development.

What was initially seen as a negotiator's ploy - threatening an
existing supplier with their competition - has turned into a real
negotiating opportunity for O'Leary with his announcement on 21
June 2011 at the Paris Air Show that he is cooperating with a
Chinese aircraft manufacturer, Comac to help them develop a
200-seater version of their new plane, the C919.

That said, he was quick to point out that Ryanair "remain in
continuing discussions with both Boeing and now Comac for a
replacement aircraft order of at least 200 aircraft". In other
words, he is trying to set up a competition between Boeing and
Comac. Also interesting is the fact that the Comac C919 will cost
roughly US$32m per plane - a lot of money, but still 10% less than
the offerings from either Boeing or Airbus. This suggests that
though price will undoubtedly be an issue for Ryanair, O'Leary does
not want to burn his boats with Boeing just yet. It remains to be
seen how willing the market is to fly on an untried plane made by a
country and company whose products have yet to develop a reputation
in Europe. He needs to be very careful indeed before foisting a
Chinese plane on a sceptical European market.

These are interesting times for all concerned and this is one of
the few commercial negotiations that is being played out in the
full glare of press publicity.

Rynair's "previous" may count against it in its negotiations
with Boeing and the increasingly distant Airbus. When negotiators
decide to adopt an adversarial stance with the other side, they
need to make sure that the power balance is well and truly in their
favour. They also need to recognise that in a long-term
relationship aggravating the other side may not work in your favour
in the long run.